When you buy a home, you aren’t just buying bricks, mortar, furniture, appliances and some great new curtains for the parlour. You’re buying all the land, underneath and surrounding your new house as well. In official terms, you are buying the “title” to the entire property, which is commonly referred to as a “deed,” or a “transfer of land.” When you buy the title to your new property this means that your lawyer has registered you as an owner in a land titles system. Now that you’re registered, you can sell your property, or even obtain financing against your home, in the future. The “title” to the land now officially belongs to you: the owner. However like everything we value, land titles come with some risks.
We are used to paying car insurance. Car insurance protects us from risks, and even financial ruin, should something terrible happen beyond the scope of affordability. It’s challenging to apply this kind of thinking to something seemingly abstract, like a “title.” But even though the title to your land is only a registration of sorts (as opposed to a potentially dangerous machine hurtling down the highway) the same concept regarding risk and the need for insurance applies. Though I’m sure you’re wondering why title insurance is so important to lenders and why it should also be important to you as well.
Among a long list of potential risks (which we will get to shortly) title fraud is considered by some, to top the list of threats to Canadian homeowners. Without the protection of title insurance it’s actually possible for people to steal your identity as the homeowner. Fraudsters can pose as you, they can finance a mortgage against your property, and even sell your home while you’re living in it. As unbelievable as that sounds, this actually happened to a man from British Columbia. Just like you protect your SIN number in the event of identity theft, it’s a good idea to take your deed, or title, to your land just as seriously. Since lenders are invested in your property title, they have an interest in its protection as well. It’s all about protecting investments. It wouldn’t benefit a lender to have collateral stolen right out from under you (and them) by an imposter.
Aside from providing legal proof that you are the owner, a property’s title describes your rights to the land and any limitations (for example power companies probably have a legal right to repair/replace or operate wires if they are on a section of your land). The property title, or official record, also lists registered mortgages and/or liens, describes any easements, and many other crucial details. This is a complicated business. Any errors or misrepresentations on your property title can have a profoundly negative impact on your property’s value, and your ability to sell or lease the property in the future. This directly concerns lenders as well as you, because the value of your property naturally ties into their operation.
Although it’s not required by law in Ontario, if you use mortgage financing to buy a Canadian residential property, your lender will require you to buy title insurance to cover their original mortgage amount. Usually this is only about $200. After this you will need to insure your title for the full amount of your purchase price (buyer’s title insurance), which is about $150. This seems convoluted, though fortunately title insurance has become so popular that insurance companies are starting to sell blanket policies that combine buyer/lender coverage giving you the option to take care of both in one swoop.
Buyer’s title insurance can be seen as an additional, or optional, expense. However it comes highly recommended. We’ve touched upon fraud, liens, and other issues that prevent you from having clear ownership of your property. However if anyone challenges your title – or if you have to defend your title against a neighbour’s renovation that spills onto your property, for example – your title insurer will cover the cost of defence (within reason). Even better, if a previous owner built an addition on your land without a proper permit, your insurance will cover the cost it will take to correct any code issues.
When it comes to property titles, the range of potentially costly issues is wide: and maybe a little scary. The good news is that from encroachment to survey errors, title insurance covers it all. Buying insurance protection (especially at a general cost of $350) is a smart investment for you, and your lender, when it comes to defence against the potentially huge cost of a title complication impacting the value of your estate. In this case a little protection goes a very long way: into your property’s past, in fact, as well as its future.
*Please consult a lawyer before making any decisions about buying or making changes to your title insurance policy.